ANNUAL REPORT Trust. Every day

Transcription

1 ANNUAL REPORT 2014 Trust. Every day

2 IN THIS REPORT OVERVIEW Highlights 01 Chairman s statement 02 Chief Executive s review 03 HOW WE CREATE VALUE Our purpose 06 Our business model 07 Our key segments 08 Our 2017 targets 09 Mobile 10 Payment & Identity 12 Gemalto and SafeNet 15 Our global operations 16 Our assets 17 FINANCIAL REVIEW Group financial review 20 Segment financial review 24 Mobile 26 Payment & Identity 27 SUSTAINABILITY Our approach to sustainability 30 Sustainability in focus 32 RISK MANAGEMENT Risk management and control 36 Principal risks 42 GOVERNANCE Our Board 46 Our Senior Management 48 Chairman s letter 50 Our Board during Board committee reports 53 Remuneration report 55 Our governance structure 59 Board statements 65 FINANCIAL STATEMENTS Consolidated financial statements and notes Consolidated statement of financial position 69 Consolidated income statement 70 Consolidated statement of comprehensive income 71 Consolidated statement of changes in equity 72 Consolidated cash flow statement 73 Notes to the consolidated financial statements 74 Statutory financial statements and notes of the Holding Company Statement of financial position of the Holding Company 110 Income statement of the Holding Company 110 Statement of changes in shareholders equity of the Holding Company 111 Notes to the statutory financial statements of the Holding Company 112 OTHER INFORMATION Independent auditor s report 119 Profit appropriation according to the Articles of Association 123 Reconciliation from adjusted financial information to IFRS 124 Investor information 126 Glossary of digital security terms 128 Gemalto N.V. (the Company) is a public company with limited liability incorporated in The Netherlands. It is headquartered in Amsterdam and has subsidiaries around the world. Unless otherwise specified, we refer to them as Gemalto, or the Group. The Board report comprises the Overview, How we create value, Financial Review, Sustainability, Risk management and Governance sections. For more information visit our website For more information visit our website

3 Overview Every day, people all over the world use our products, platforms and services. They re benefiting from digital security technologies we ve made safe and reliable. Solutions we ve helped our clients to offer. That s our business: working behind the scenes, enabling secure, convenient digital services to be delivered to billions of individuals. And, ultimately, it s about providing trust. Every day. HIGHLIGHTS REVENUE ALL OPERATIONS 2,465m +3% at historical exchange rates +5% at constant exchange rates PROFIT FROM ONGOING OPERATIONS 383m 2013: 348m PROFIT MARGIN FROM ONGOING OPERATIONS 15.5% 2013: 14.6% 1 Adjusted financial information for all operations. IFRS NET PROFIT 221m 2013: 258m ADJUSTED BASIC EARNINGS PER SHARE : 3.68 PROPOSED CASH DIVIDEND PER SHARE : 0.38 NET CASH 493m 2013: 449m CASH GENERATED FROM OPERATIONS 348m 2013: 322m RETURN ON CAPITAL EMPLOYED (ROCE) % 2013: 17.9% How we create value Financial review Sustainability Risk management Governance Financial statements Gemalto Annual Report

4 OVERVIEW Chairman s statement Justifying high expectations Digital security markets are developing as Gemalto anticipated, confirming that our strategies are well founded. ALEX MANDL CHAIRMAN 2017 PROFITS FROM OPERATIONS TARGET UPGRADED TO OVER 660m Gemalto performed well in 2014, with double-digit profit growth on a solid single-digit revenue increase. Delivering this result despite volatile global market conditions, hesitations about emerging technologies and unfavorable currency fluctuations was quite an achievement. But the underperformance of Gemalto s share price over the year reflects investor sentiment: they had expected Gemalto s innovation and leadership to drive a steadier momentum. On track towards high targets A year ago we declared two targets for our Development Plan. These reflected our objectives for significant revenue and profit growth over a medium term horizon. They were based on realizing the benefits of investments in the development of our software and services, in our products and manufacturing footprint, and in our people, in order to address new market opportunities. Progress to date has given us the confidence to raise our target for profit from operations to at least 660 million in Indeed, we can now look forward to another growing contribution, from our acquisition of SafeNet. This strategic addition brings strong margins and cash generation, and significantly broadens our Platforms & Services capabilities. The result is a more balanced structure, with offerings along the entire digital security chain and now with a strong worldwide presence in Enterprise and data protection. Capturing renewed market momentum While 2014 had its challenges, Gemalto s focused strategy and short adjustment loops initiated a progressive return to the momentum that investors had grown accustomed to and that we expect to see increasing in Digital security markets are developing very much as Gemalto anticipated, confirming that the company s vision and strategies are well founded and that we are well prepared to take advantage of opportunities as they arise. For example, as the migration to Europay, MasterCard, Visa (EMV) technology now gains traction in the US and continues in China, we had put at the right time the capabilities in place to capture the vast demand materializing in both markets. And in the US, where we had been building our presence in the Enterprise sector to balance our leading position in Mobile, 2014 s succession of security breaches has heightened market awareness. The growing threat of attacks is constantly increasing corporate demand for the reassurance Gemalto can provide. Given its continuing organic growth path, plus the SafeNet acquisition, Gemalto is a bigger and stronger business than it was a year ago. It has the technology, the experienced people and the market neutrality to help customers of all sizes manage their digital privacy and security in the strictest independence. More than ever, it is in the right markets at the right time and better placed than ever to meet investors justifiably high expectations. Alex Mandl Chairman 02 Gemalto Annual Report 2014

5 Chief Executive s review Record results prove our strengths Overview Our agility makes us constantly focus our resources and effort on the most promising growth areas. OLIVIER PIOU CHIEF EXECUTIVE OFFICER INVESTORS RESPONSE TO OUR BOND ISSUE SHOWED THEIR CONFIDENCE 400m With our best-ever revenue and profits in 2014 we made a good start to our Development Plan. We also demonstrated two key strengths underpinning Gemalto s success: resilience and flexibility. Meeting challenges with resilience Digital security is a fast-moving business. It constantly presents new opportunities, frequently influenced by megatrends and also new challenges, often unpredictable. In 2014 these ranged from political instability in the Middle East and the Ebola outbreak to uncertainties about the impact of new specifications which, through our flexibility and expertise, we turned to our advantage. We continued to grow because we are trusted by clients in many countries, hold leading positions in a number of markets and maintain a broad technology base with strong R&D. We offer devices, software, platforms and services, enabling us to tailor solutions precisely to our clients requirements. These strengths combine with an organizational agility which makes us constantly focus our resources and effort on the most promising growth areas. Prepared to seize opportunities Hence in 2014 we again seized exciting new opportunities. Expanding our presence in the Enterprise sector was a key element in our Development Plan, i.e. building enhanced capabilities at the core of online networks onto our familiar strength at their edge. SafeNet met these needs precisely, complementing our existing offer and opening up new markets and distribution channels. When it became available, our planning process enabled us to move quickly in appraising the opportunity and obtaining our Board s support for the acquisition. Meanwhile, our existing markets have continued to present fresh prospects. Our Payment & Identity business, for example, was at the heart of the migration to EMV card technology in the US, where we also have a strong presence in advanced mobile solutions. As always, our success is built on trust. Our customers trust us to facilitate their relationships with end-users, and to safeguard their reputations and their data. Their satisfaction, which we measure regularly, remained very high. The motivation and adaptability of our people is another key factor in our resilience, and our annual survey shows that their commitment also reached record levels. Equally, long-term investors evidenced their confidence in the strong takeup of our 400 million seven-year bond issuance. We continue to carefully drive the expansion of our business, balancing risk and opportunity. And with SafeNet we now have the ability to propose where trust is best managed, whether in the cloud or in the device in your pocket. This gives us today even greater resilience and flexibility for the future. Olivier Piou Chief Executive Officer How we create value Financial review Sustainability Risk management Governance Financial statements Gemalto Annual Report

6 HOW WE CREATE VALUE Trust. Every day Enabling shoppers to wave and pay in Japan Japan has the world s largest contactless infrastructure. Its consumers are used to making payments with a wave of their phone, and they re hungry for more services from mobile payments to loyalty programs, and e-ticketing to access control. So Gemalto is the natural mobile near-field communication (NFC) partner for the country s number one mobile operator, NTT DOCOMO. Our end-to-end solution, selected in 2014, offers its 63 million subscribers the highest levels of convenience and security. 04 Gemalto Annual Report 2014

7 Overview Our purpose 06 Our business model 07 Our key segments 08 Our 2017 targets 09 Mobile 10 Payment & Identity 12 Gemalto and SafeNet 15 Our global operations 16 Our assets 17 How we create value Financial review Sustainability Risk management Governance Financial statements Gemalto Annual Report

8 H O W W E C R E AT E VA L U E Our purpose is to create trust in the digital world Trust is vital to a digital world witnessing an ever-increasing value in dematerialized exchanges. The roots of trust lie in ensuring their integrity and confidentiality. It can be enabled by using cryptography to secure network assets and a reliable identification process to access them. TRUSTED EXCHANGE BILLIONS OF PEOPLE WITH UNIQUE, PROTECTED IDs BANKS, GOVERNMENTS, CORPORATIONS, RETAILERS AND MOBILE OPERATORS, WITH DIGITAL ASSETS Users and service providers need to interact 06 Gemalto Annual Report 2014

9 Our business model generates value across the trust chain Overview The trust chain comprises two essential, interlocking elements at the edge and core of digital security. These are the focus of our two main activities: Embedded software & Products, and Platforms & Services. ISSUE AND PROTECT IDs edge MANAGE IDs AND GRANT ACCESS core EMBEDDED SOFTWARE & PRODUCTS (E&P) Secure devices with our embedded software. Sell products Software and hardware bundles Drawing on our expertise in security and cryptography, we develop and embed secure software in a wide range of smart electronic products. We personalize these devices with the credentials of our clients and the identities of their customers across hundreds of networks. PLATFORMS & SERVICES (P&S) Sell licenses Software only Increasingly advanced software content Platforms protecting customer data in the field and management systems running on secure servers in our data centers. Sell licenses Pay per user Operate Platforms & Services Pay per usage Increasing demand for trusted services We ensure these digital devices are continuously monitored and properly managed while they are in the field. We verify the identities that are presented and perform the transactions required. And we protect the data at rest and in motion within the network. How we create value Financial review Sustainability Risk management Governance Financial statements Gemalto Annual Report

10 HOW WE CREATE VALUE We are addressing key segments and customer needs Our solutions address fundamental needs in the digital security market: Trust Reach Simplicity These needs underpin our performance across all segments and activities MOBILE MOBILE COMMUNICATION MACHINE-TO-MACHINE PAYMENT & IDENTITY ELECTRONIC PAYMENT E-GOVERNMENT ENTERPRISE SECURITY EMBEDDED SOFTWARE & PRODUCTS (E&P) edge REVENUE ,031m GROWTH +0% REVENUE m GROWTH +8% core PLATFORMS & SERVICES (P&S) REVENUE m GROWTH +7% REVENUE m GROWTH +14% 08 Gemalto Annual Report 2014

11 We are making tangible progress towards our 2017 targets Overview Our financial performance is showing constant improvement due to three main factors: TEN STRONG PILLARS OF REVENUE GROWTH Opportunities spread in Mobile and Payment & Identity, across geographic regions, and evenly split between E&P and P&S. Large, addressable, underpenetrated markets with rapidly growing and recurring demand SIM, other secure clients Trust infrastructure M2M Core services Payment cards Mid single-digit revenue CAGR Payment Platforms & Services Low twenties revenue CAGR Online access services Online access services egov documents egov Platforms & Services REVENUE MIX More platforms usage and users Richer embedded software Lower proportion of hardware SCALE EFFECT Replication of projects and higher utilization of infrastructure Wider distribution of products Better absorption of G&A over 660m profit from operations (double 2012) By 2017 we target... 1bn revenue in Platforms & Services How we create value Financial review Sustainability Risk management Governance Financial statements Gemalto Annual Report

12 HOW WE CREATE VALUE Mobile: services and subscriptions multiply as machines also get connected Mobile connectivity is bringing consumers a convenient digital life, wherever they go. Services are proliferating on the devices they carry every day. And machines are increasingly connected, too, in the rapidly expanding Internet of Things. Mobile: market trends The market continues to expand as more and more business sectors and services converge on mobile communication. Half of visits to UK eretail sites are now being made via mobile 1, and in the period data traffic is forecast to grow three times faster on mobiles than fixed line internet traffic 2. The mobile market has broadened from voice, through data delivering ever-expanding entertainment and ecommerce opportunities to today s proliferation of payment options, so that every business now needs a mobile strategy. Mobile payment plays to our expertise in both hardware and software as well as services. We have progressively added different payment technologies to our portfolio, including carrier billing for digital content such as games, music and movies. We have also seen surging demand for payment solutions in developing markets, where unbanked customers can use their mobile phones to pay bills. Yet this payment revolution is only just beginning, as devices become mobile wallets, replacing cash, loyalty cards and more at retail checkouts. The underlying NFC technology has expanded significantly in recent years such that users can also take public transport with just a wave. The launch of Apple Pay in 2014 further reinforces our position in this thriving environment, since it supports the global move to mobile contactless payment using standard NFC with a secure element for storing credentials. OPPORTUNITIES EMBEDDED SOFTWARE & PRODUCTS SIM cards and embedded secure clients Mobile connections are proliferating Mobile penetration continues to grow in developing countries, and in the developed world people now often have several mobile devices using our secure technology. Multi-tenant SIMs, carrying multiple IDs and shared by multiple service providers, as well as builtin secure elements, mean more embedded software and multiple opportunities per device. Rapid innovation encourages regular upgrades. PLATFORMS & SERVICES Trust infrastructure Digital interactions need trusted connections A new shared and trusted global infrastructure, the Trusted Services Hub (TSH), is enabling consumers to connect securely to all sorts of online services and we are at the heart of it. Already, some 1.5 billion mobile users are covered by Gemalto-contracted platforms worldwide. 3 TSH is also the backbone for dynamic management of cellular subscriptions, supported by new generations of SIMs tailored to an extensive range of electronic devices. Machine-to-Machine (M2M) Things are getting connected too A huge upsurge is under way in machines using mobile connections in sectors such as health, energy and automobiles. Between 2014 and 2017, mobile M2M connections are forecast to triple 4 reaching 98 million in the auto market by We have market-leading solutions for both ends of the connection. Core back-end services More users, more usage, more services Our secure management services to mobile network operators continue to grow, boosted by new capabilities such as activating 4G subscriptions and enabling consumers to pay for online purchases via their phone bill particularly valuable in developing countries, where many subscribers lack bank accounts. 1 Source: Capgemini 2 Source: Cisco 3 Source: Gemalto 4 Source: IHS 5 Source: IHS 10 Gemalto Annual Report 2014

13 Overview Trust. Every day Putting contactless onboard China s mobiles China is going contactless in a big way. Its banking systems are moving to EMV cards, mostly contactless, and most mega-cities now have contactless transport infrastructures. With smartphone penetration now over 66% 1, mobiles are going contactless too. China Telecom, with over 183 million subscribers, is using a specially customized version of our UpTeq Multi-Tenant NFC SIM card. Combining NFC with the speed of mobile broadband, this will facilitate future applications such as contactless airport check-ins. At Gemalto, we are not only providing these secure elements but also addressing the diversity of devices and the needs of multiple service providers. Our Allynis TM TSH delivers the secure interoperability on which they all depend. Another growth opportunity is the need for authentication to combat online fraud. Gemalto is a partner in the GSMA Mobile Connect initiative, enabling users to verify their identity with their mobile device. This is destined to become a standard feature in future SIM cards. The breadth of uses for M2M is also driving rapid market expansion, bringing new customers and brands such as auto makers onto mobile platforms. Hence the market for M2M modules again grew strongly in 2014, for applications ranging from utility meters to vending machines, and is forecast to continue rising such that by 2020 there will be close to 1 billion M2M cellular subscriptions 2. Despite some price erosion, this market s surging value has been shored up by customers migration from 2G to higher-value 3G and 4G/Long Term Evolution (LTE) technology. Mobile: our solutions In the mobile market, our wide range of solutions includes an increasing number of 4G subscription activation services, mobile payment services and 4G SIMs across all regions. Multi-tenant SIMs, used to secure third-party services such as mobile payment, are generating increasing traction around the world. As devices multiply in non-secure environments, there is also strong demand for our M2M platform, which simplifies security and subscription management. Diverse industries are attracted to our M2M products which include higher-value modules, as well as secure elements carrying machine subscriptions and protecting data exchanges. Trust. Every day Helping monitor patient medication in the US MedMinder s smart pill dispensers keep an eye on patients medication when doctors and carers aren t there. If the patient misses a dose, they issue reminders a beep, then a phone call. Still no response? They ll phone or text to let a carer know. Doctors can monitor medication usage by accessing data on a secure server, and even manage changes remotely. In an emergency, a built-in voice channel lets the patient ask a monitoring center for help. And it s all made possible by Gemalto s advanced M2M module. How we create value Financial review Sustainability Risk management Governance Financial statements 1 Source: Nielsen Mobile Consumer Report 2 Source: GSMA Gemalto Annual Report

14 HOW WE CREATE VALUE Payment & Identity: widespread demand for secure solutions drives growth The digital age is creating seemingly limitless opportunities to deliver services more conveniently and efficiently. At the same time it also creates evergreater demand for the protection of data and identities, to provide trust, authenticate people and combat fraud. Payment: market trends In the payment market, one of the principal drivers is the migration to the chip-based EMV 1 standard. This helps to combat fraud and security concerns, and also creates the potential for launching new services such as those available via contactless technology. EMV is already well established in Europe and Latin America, and the huge China and US markets are also starting adoption. In the latter, for example, 75 million EMV cards were shipped in However, driven by the impact of security concerns, including major breaches at retailers, this number had leapt to 208 million by the end of 2014 and is expected to reach over 450 million by The adoption of contactless payment cards is also growing fast, particularly in China and South East Asia, with shipments forecast to rise from 300 million in 2012 to close to a billion in Payments using mobile devices are also taking off and by 2018 it is predicted that over 30% of all handsets, and up to 90% in the US, will be capable of making NFC transactions 4. Gemalto is well placed to benefit, particularly as mobile payment and banking solutions converge. OPPORTUNITIES EMBEDDED SOFTWARE & PRODUCTS Electronic payment cards Card payment is still growing The number of payment cards in circulation will continue to grow, up from 15.8 billion in 2013 to over 23 billion in The switch to chip-based EMV cards still has a long way to go, with major countries still in the first stages of a migration that typically takes five to six years. And by 2017 we expect half of all cards issued to include contactless technology 6. Online access for users More and more customers bank by mobile In the period , the number of people banking online will rise 22% to 1.7 billion, and those using mobile banking will jump 80% to 1.8 billion 9. We are leaders in online banking security. State documents Public administration goes digital too The adoption of state-issued credentials is growing fast, with government eid systems increasing security, cutting fraud and red tape, and improving services to citizens. 108 countries are also incorporating contactless chip technology in travel documents 10, while the International Civil Aviation Organization s global Traveler Identification Program is another digital driving force. PLATFORMS & SERVICES Payment platforms and services Consumers want more ways to pay Today there are 9 billion card-based payment accounts 7. And increasingly, consumers want more ways to pay using at least two other connected devices 8. Potentially that s 27 billion payment credentials to issue, secure and manage, with contactless and NFC technologies as further growth drivers. Accessing online services We re taking our own devices to work While businesses move more and more of their data to the cloud, employees are accessing corporate networks from their own personal devices. In this context, the multiplication of security breaches and theft of sensitive information demands a stronger protection of information systems. In ten years we foresee a tenfold increase in demand for cloud authentication services. egovernment platforms and services eid and epassports enable new citizen services Behind edocuments we build systems allowing people to complete and digitally sign forms as well as access government services online conveniently and securely. With epassports, travelers can automatically open border gates, for example, and access fast-track immigration clearance. 12 Gemalto Annual Report 2014

15 Overview Trust. Every day Making university life even smarter Our university ID cards are pretty smart. They provide secure access to buildings, car parks and computers, payment for vending machines and meals, discounts in shops, e-votes in university elections and management of loans in libraries. We developed them for Banco Santander s University Smart Card program in Spain, Chile, Brazil and Mexico. And now we ve put the technology on a Micro-SD card so students and university staff can use it on their mobiles. What s more, the card s built-in NFC means even non-nfc handsets will work in contactless mode. 1 EMV: Europay, MasterCard, Visa 2 Source: ABI 3 Source: Eurosmart, November Source: Juniper research 5 Source: Nilson Report 6 Source: Gemalto 7 Source: Nilson Report, National Gold Card Foundation, EMVCo 8 Source: Cisco VNI 9 Source: Juniper research 10 Source: ICAO In this context we are helping banks implement both in-device and cloud-based payment using our universal Trusted Service Hub. We are also providing full solutions for implementing secure mobile banking applications and other mobile-related services, such as card activation via SMS. Our ability to provide trust will be crucial: consumers willingness to adopt new services will depend on their confidence in the systems security. Payment: our solutions Our deployment of EMV technology is growing strongly in the US and China as migration gets under way. For EMV deployments around the world we provide both personalization and card services to financial institutions. EMV creates opportunities for banks and retailers to add new services. This standard also supports NFC, allowing contactless payment. Our deliveries comprise an increasing number of dual-interface (contact and contactless) as well as Dynamic Data Authentication (DDA) products featuring more sophisticated software. The Gemalto Trusted Service Hub brings the most complete and yet modular solution for enabling real-time enrollment of payment cards, homogeneous distribution to diverse devices and simplified on-boarding of business partners. The hub service offers simplicity and choice with regards to available security models, covering management of credentials on Secure Elements, Trusted Execution Environment (TEE), HCE-enabled handsets or a combination of these. For banks and payment service providers seeking to create a seamless mobile payment experience, we offer an integrated solution, from the mobile tokenization gateway all the way to the client-server architecture for provisioning and processing payment security. How we create value Financial review Sustainability Risk management Governance Financial statements Gemalto Annual Report

16 HOW WE CREATE VALUE Payment & Identity Widespread demand for secure solutions drives growth continued Identity: market trends Today, there are an estimated 7.8 billion government-issued IDs in circulation worldwide, including driving licenses and passports 1. A growing proportion of these documents is electronic, with onboard microprocessors to enhance security and enable added services. This allows more citizen-centered governance and applications: the system we developed for Qatar offers 500 government services online through a single sign-on. Increasingly, governments are creating national frameworks of trust on the internet and using chip-enabled eid cards to open access to public services and payments. In the EU, for example, one in three citizens already holds an electronic ID card 2 and there are concrete plans to use them to access cross-border health services. And since there are already some 640 million smartphones with NFC capability 1, there are increasing opportunities to deliver IDs via the mobile. Border agencies face fast-growing traveler numbers and the challenge of facilitating swift and secure transits within tight budget constraints. We are helping them to achieve this, exploiting technological convergence to deliver online visa applications, prevent illegal immigration and improve border intelligence. In the corporate world, interest in enhancing ID and access control has been heightened by a number of high-profile security breaches. Our range of security offerings includes Protiva ExecProtect, which addresses the need for privileged access, highlighted by leaks of classified information in the US. A major trend now is to use employees smartphones and tablets for authentication, removing the need for them to carry separate ID devices. Identity: our solutions Today, one in three travelers with epassports is carrying Gemalto technology and we are working on travel documents for more than 25 countries. We also offer our Coesys automated border control systems. In the enterprise market, two major drivers are employees need to access corporate resources online wherever they are, and their desire to do this using their own devices. This is now a requirement for businesses of all sizes. Our portfolio in cloud access security is further boosted by demand for securing internet banking services. Here, our expertise in strong authentication is enabling our clients to offer secure, cost-efficient ebanking to a rapidly increasing usership. Trust. Every day Speeding epassport delivery in Algeria The world is switching fast to e-passports. Our leading role in this development is due to our reliable and innovative technology as well as our advanced production and delivery capability. Our ability to increase speed and reduce costs were key criteria when Algeria selected us in 2014 to support their ambitious e-passport program. SafeNet a perfect fit in access security Our acquisition of SafeNet, announced in August 2014 and concluded in January 2015, makes us world leader in cloud data, software and transaction security. SafeNet serves more than 25,000 corporate and government customers in over 100 countries, protecting access to sensitive data and high-value applications including more than 80% of the world s intra-bank fund transfers. Together, we combine the best technologies, expertise and services available for securing a complete infrastructure network, users, data and software. This will accelerate delivery of Gemalto s security solutions to enterprises and SafeNet s data protection solutions to the banking and telecom sectors. For more information visit our website at 1 Source: ABII 2 Source: Eurosmart 14 Gemalto Annual Report 2014

17 Overview How we create value Financial review SECURING CLOUD DATA, SOFTWARE AND TRANSACTIONS Sustainability NE T WORK SECURIT Y IS BASED ON T WO ELEMENTS SECURITY AT THE SECURITY AT THE core MANAGE IDs AND GRANT ACCESS PROTECTING DATA AUTHENTICATING USERS SafeNet s expertise is in data encryption and security key management... Gemalto s expertise is in user authentication and management solutions... DIRECT CHANNEL Risk management edge ISSUE AND PROTECT IDs INDIRECT CHANNEL...and has a large skilled partner and reseller network for enterprises of all sizes, internet service providers and software editors. Governance...and has trusted relationships with mobile operators, original equipment manufacturers, financial institutions, governments and large enterprises. Financial statements CRE ATING A COMPREHENSIVE SECURIT Y CHAIN FOR BILLIONS OF PEOPLE Gemalto Annual Report

18 HOW WE CREATE VALUE We operate globally where our clients need us We are a truly international company with clients from over 180 countries. They are served by our employees of 116 nationalities operating from a worldwide network of research and software development (R&D) centers, sales offices, personalization and data centers and production facilities. And we systematically share our expertise through a series of client-focused forums addressing the opportunities in growth markets on different continents. EUROPE, CIS, MIDDLE EAST & AFRICA REVENUE HEADCOUNT 1,128m 51% OFFICES WORLDWIDE PRODUCTION FACILITIES RESEARCH AND SOFTWARE DEVELOPMENT CENTERS 24 NORTH & SOUTH AMERICA REVENUE HEADCOUNT ASIA PACIFIC 836m 22% REVENUE 501m 27% HEADCOUNT NATIONALITIES EMPLOYED Gemalto Annual Report 2014

19 We have strong assets and sharp customer focus Overview 46 COUNTRIES WITH AN OPERATIONAL SITE PERSONALIZATION AND DATA CENTERS 34 Our success is founded on our dedication to satisfying our customers, our attention to developing our people, and on two unique assets: our technological expertise and our market neutrality. TECHNOLOGICAL EXPERTISE Our technology to secure digital identities and access services has proven to be an unmatched combination of security, scalability and cost efficiency. MARKET NEUTRALITY We operate behind the scenes so that our clients can preserve a direct and trusted relationship with their customers. CUSTOMER SATISFACTION WE WORK IN PARTNERSHIP WITH OUR CLIENTS TO SHAPE OUR DEVELOPMENT. IN 2014, IN OUR ANNUAL CUSTOMER SURVEY, 84% OF THEM SAID THEY WERE SATISFIED OR VERY SATISFIED WITH GEMALTO A WORLD-CLASS RATING. EMPLOYEE ENGAGEMENT OUR ANNUAL EMPLOYEE SURVEY SHOWS A REMARKABLY HIGH LEVEL OF COMMITMENT TO GEMALTO, WITH 82% SAYING THEY WERE SATISFIED WITH THE COMPANY IN R&D LEADERSHIP WE GET AWARD-WINNING RESULTS WITH OUR PROACTIVE INNOVATION PROGRAM AND BUSINESS INCUBATION STRUCTURE. IN 2014 WE FILED PATENTS FOR 114 NEW INVENTIONS. ESTABLISHED REPUTATION TRUST IS ONE OF OUR MAIN ASSETS AND FUNDAMENTAL TO THE WAY WE DO BUSINESS. EVER SINCE GEMALTO WAS CREATED WE HAVE BEEN PROGRESSIVELY ENHANCING THE SERVICE WE DELIVER TO OUR CLIENTS AND SO DEVELOPING THE COMPANY S BRAND RECOGNITION AND REPUTATION. How we create value Financial review Sustainability Risk management Governance Financial statements Gemalto Annual Report

20 FINANCIAL REVIEW Trust. Every day Making home banking easy in Panama Panama s largest bank, Banconal, turned to Gemalto in 2014 to help it offer multi-channel mobile banking and e-banking to all its customers. Our Ezio mobile app turns their phones and tablets into strong authentication devices. And to identify themselves securely and sign transactions online, they simply use our Ezio Slim Optical Token. When the card-sized device is held close to a PC screen, its optical sensors register details transmitted through an on-screen barcode. 18 Gemalto Annual Report 2014

21 Overview Group financial review 20 Segment financial review 24 Mobile 26 Payment & Identity 27 How we create value Financial review Sustainability Risk management Governance Financial statements Gemalto Annual Report

22 FINANCIAL REVIEW Group financial review Full year revenue of 2.5 billion, up +5%, and profit from operations up +10%, at 383 million Platforms & Services revenue passed the 500 million mark Strong demand in the United States, revenue up +32% For 2015, steady annual PFO expansion expected, towards the upgraded 2017 objective Profit from ongoing operations m +17% CAGR Proposed dividend Revenue m +7% CAGR 2,384 2,465 2,236 1,862 1, % CAGR Basis of preparation of financial information In this section, the information for the full year of both 2014 and 2013 is presented for ongoing operations and under the 2014 format of segment reporting unless otherwise specified. Adjusted income statement and profit from operation (PFO) non-gaap measure The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS). To better assess its past and future performance, the Company also prepares an adjusted income statement where the key metric used to evaluate the business and make operating decisions over the period 2010 to 2017 is the profit from operations (PFO). PFO is a non-gaap measure defined as the IFRS operating result adjusted for the amortization and depreciation of intangibles resulting from acquisitions, for sharebased compensation charges, and for restructuring and acquisition-related expenses. These items are further explained in Note 6 to the financial statements. These non-gaap financial measures are not meant to be considered in isolation or as a substitute for comparable IFRS measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with IFRS. In the adjusted income statement, Operating Expenses are defined as the sum of Research and Engineering expenses Sales and Marketing expenses, General and Administrative expenses, and Other income (expense) net. EBITDA is defined as PFO plus depreciation and amortization expenses, excluding the above amortization and depreciation of intangibles resulting from acquisitions. ROCE is defined as after-tax PFO for all operations divided by capital employed. For further explanation and reconciliation to IFRS numbers see pages SafeNet s pro forma 2014 full year adjusted income statement presented in this document corresponds to management estimates. Results in Euro were translated from US dollar using monthly currency conversion rates. Ongoing operations For a better understanding of the current and future yearon-year evolution of the business, the Company provides revenue from ongoing operations for both the 2014 and 2013 reporting periods. The adjusted income statement for ongoing operations excludes, as per the IFRS income statement, the contribution from discontinued operations, and also the contribution from assets classified as held for sale and from other items not related to ongoing operations. In this publication, reported figures for ongoing operations only differ from figures for all operations by the contribution from assets held for sale for the year For the year 2014, there is no difference between ongoing operations and all operations. Segment information From January 1, 2014, segment information was modified to report on progress towards the objectives set as part of the Company s new long-term development plan covering the years 2014 to 2017, publicly announced on September 5, The Mobile segment reports on businesses associated with mobile cellular technologies. The former Mobile Communication and Machine-to-Machine segments are part of Mobile. The security evaluation business for third parties, whose contribution to Mobile Communication was minor, is now managed together with the Patents business and is as of January 1, 2014 reported in the Patents & Others segment. The Payment & Identity segment reports on businesses associated with secure personal interactions. The former Secure Transactions and Security segments are part of Payment & Identity. In addition to this segment information, the Company also reports as of 2014 revenue of Mobile and Payment & Identity by type of activity: Embedded software & Products (E&P) and Platforms & Services (P&S). Historical exchange rates and constant currency figures Revenue variations are at constant exchange rates, except where otherwise noted. All other figures in this section are at historical exchange rates, except where otherwise noted. The Company sells its products and services in a very large number of countries and is commonly remunerated in other currencies than the euro. Fluctuations in these other currencies exchange rates against the euro have in particular a translation impact on the reported euro value of the Company revenues. Comparisons at constant exchange rates aim at eliminating the effect of currencies translation movements on the analysis of the Group revenue by translating prior-year revenues at the same average exchange rate as applied in the current year. 20 Gemalto Annual Report 2014

23 Overview Adjusted financial information for all operations The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. To better assess its past and future performance, the Company also prepares an adjusted income statement. In comparison to the adjusted income statement for ongoing operations, the adjusted income statement for all operations also includes the contribution from assets held for sale. For the year 2014, there are no assets classified as held for sale, and for 2013 assets held for sale were minor non-strategic assets that were disposed during Note 6 to the financial statements bridges the adjusted income statement for ongoing operations to the adjusted income statement for all operations. The reconciliation between IFRS and adjusted income statements can be found on pages 124 and 125. Total revenue came in at 2,465 million, up by +5% at constant exchange rates and up by +3% at historical rates, with growth coming from both main segments, Mobile and Payment & Identity, and from both activities, Embedded software & Products and Adjusted financial information for all operations Extract of the adjusted income statement for all operations Platforms & Services. The strong year-on-year unfavorable foreign currency translation impact experienced in the first semester was partially offset in the second part of the year by the strengthening of the US Dollar against the Euro. In Embedded software & Products, payment-related activities contributed the most to the growth, with further expansion in revenue from EMV payment cards. Demand for connectivity and security modules for the Internet of Things also notably contributed to the revenue increase. In contrast, egovernment documents revenue reduced due to lower sales in the Middle-East. SIM sales returned to growth in the fourth quarter, and full year revenue was lower mainly due to slower demand in certain countries in Latin America and Eastern Europe. Overall revenue for the Embedded software & Products activity increased by +4% on Platforms & Services grew by +10%, with expansion in both segments. Issuance and personalization services represented the largest part of the growth. Revenue increase also came from mobile subscriber management services as well as from mobile payment services though the year was marked by project delays linked to discussions around new technical specifications. in millions Full year 2014 Full year 2013 As a % of revenue in millions As a % of revenue Year-on-year variation at historical exchange rates Year-on-year variation at constant exchange rates Revenue 2, , % +5% Gross profit % % (0.6 ppt) Operating expenses (569.5) (23.1%) (588.8) (24.7%) +1.5 ppt EBITDA % % +1.2 ppt Profit from operations % % +1.0 ppt Net profit % % (0.4 ppt) Basic earnings per share ( ) (1%) Diluted earnings per share ( ) (1%) Platforms & Services Revenue from ongoing operations in Platforms & Services activities ( in millions) Year-on-year variations at constant exchange rates Year-on-year variations at historical exchange rates Mobile % +5% Payment & Identity % +13% Total % +9% How we create value Financial review Sustainability Risk management Governance Financial statements Gemalto Annual Report

24 FINANCIAL REVIEW Group financial review continued Gross profit was up by 16 million, to 952 million, representing a gross margin of 39%. In Mobile, gross margin reduced by 1.3 percentage points due to the lower sales of SIMs. In Payment & Identity, gross margin was higher by 0.5 percentage points due to the scale effects of the ongoing EMV migration. Operating expenses represented 569 million, down 3% on the previous year. The contraction came primarily from the lower cost of performance incentives, that were conditional in part on revenue objectives, and from tighter control of external costs implemented in the second part of the year. Hedging absorbed a part of the adverse effect on the profit from operations coming from currency fluctuations against the Euro. When excluding the impact of hedge and currency variations, the year-on-year increase in profit from operations was 54 million, higher by 19 million than the 35 million increase in profit from operations actually reported. As a result, full year 2014 profit from operations came in at 383 million, up by +10% compared to Profit from operations margin reached 15.5% of revenue, up by +1.0 percentage point compared to Both figures represent new record performances for the Company. Gemalto financial income was ( 12) million compared to ( 7) million in Interest expenses increased due to the 2 million interest charge incurred on the 400 million bond issued during the third quarter of Share of profit in associates was ( 1.0) million for the full year In 2013, there was an exceptional 20 million non-recurring profit relating to associates generated by the recognition of a gain linked to capital restructuring and IPO of an associate. As a result, adjusted profit before income tax came in at 370 million, compared to 358 million the previous year. Adjusted income tax expense increased to ( 54) million compared to ( 43) million the previous year, and consequently, the adjusted net profit for all the operations of the Company was 315 million, stable when compared to last year s figure. Adjusted basic earnings per share for all operations came in at 3.64, and adjusted diluted earnings per share for all operations at 3.55, compared to 2013 adjusted basic earnings per share for all operations of 3.68 and adjusted diluted earnings per share for all operations of IFRS Results Restructuring and acquisition-related expenses were 30 million vs 3 million for 2013 due mainly to the re-balancing of certain industrial and engineering capabilities across worldwide sites to optimize future productivity already reported in the first semester Amortization and depreciation of intangibles resulting from acquisitions amounted to 27 million, as in The equity-based compensation charge accounted for 55 million, vs 35 million in 2013, as the Company introduced a new long-term incentive plan that is aligned with its multi-year development plan objectives and conditional on a set of cumulative progress indicators over the plan period. The IFRS income tax rate came in at 14% for the year. As a result, Gemalto recorded an IFRS operating profit (EBIT) of 270 million for 2014 ( 282 million in 2013) and IFRS net profit of 221 million for 2014 ( 258 million in 2013). IFRS basic earnings per share and diluted earnings per share were 2.55 and 2.49 respectively in 2014, compared to 3.01 and 2.92 respectively in Cash position variation schedule in millions Full year 2014 Full year 2013 Cash and cash equivalent, beginning of period Cash generated by operating activities, before changes in working capital Cash provided (used) by working capital (81) (76) decrease (increase) Cash used in restructuring actions (20) (2) Cash generated by operating activities Capital expenditure and acquisitions (125) (103) of intangibles Free cash flow Interest received, net 2 1 Cash used by acquisitions (84) (30) Other cash provided by investing activities 0 13 Currency translation adjustments 1 (9) Cash generated (used) by operating and investing activities Cash used by the share buy-back program (17) (23) Dividend paid to Gemalto shareholders (33) (29) Proceeds from bond issuance and credit line drawdown Other cash provided by financing activities 9 19 Cash and cash equivalent, end of period 1, Current and non-current borrowings excluding (564) (7) bank overdrafts, end of period Net cash, end of period Gemalto Annual Report 2014

25 Overview Statement of financial position and cash position variation schedule For the full year 2014, Gemalto operating activities generated a cash flow of 394 million before changes in working capital, compared to the 332 million generated in Changes in working capital reduced cash flow by ( 81) million compared to ( 76) million in 2013 with trade receivables up year-on-year mainly from increasing sales and revenue growth in the fourth quarter stronger than in 2013, particularly near the end of the year, and slightly reduced trade and other payables resulting from the tight management of operating costs. Capital expenditure and acquisition of intangibles amounted to 125 million, i.e. 5.1% of revenue. Purchase of Property, Plant, and Equipment represented 81 million, versus 62 million in 2013, as investments were made in personalization centers and other facilities to support growth in the Payment & Identity segment. Capitalization of development expenses represented 37 million, i.e. 1.5% of revenue ( 27 million, 1.1% in 2013) and total expenditure incurred for intangible assets amounted to 44 million, i.e. 1.8% of revenue ( 41 million, 1.7% in 2013). Free cash flow from operations was up +23% compared to 2013 at 189 million before restructuring actions, and up +11% at 169 million when including the 20 million cash outflow for restructuring actions. Net cash flow from financial income elements was a gain of 2 million, corresponding to interest received net. Cash outflow related to acquisitions, net of cash acquired, was 84 million in 2014, up from 30 million in The main activity of the businesses acquired is to provide personalization and issuance services in the banking and government sectors in the United States. Gemalto s share buy-back program used 17 million in cash in 2014, for the purchase of 222,286 shares, net of the liquidity program. As at December 31, 2014, the Company held 1,202,927 of its own shares in treasury, representing 1.37% of its issued and paid-up share capital. The total number of shares issued and paidup remained unchanged during 2014 at 88,015,844 shares. Net of the 1,202,927 shares held in treasury, 86,812,917 shares were outstanding as at December 31, The average acquisition price of the shares repurchased on the market as part of the Company s buy-back program and held in treasury as at December 31, 2014 was On May 24, 2014, Gemalto paid a cash dividend of 0.38 per share in respect of the fiscal year 2013, up 12% on the dividend paid in This distribution used 33 million in cash. As part of the acquisition of SafeNet, which was expected to close at the end of 2014, a seven-year bond was issued at the rate of 2 1/8 % and existing credit lines were partially drawn, for a total amount of 555 million. Other financing activities generated 9 million in cash, including 14 million of proceeds received by the Company from the exercise of stock options by employees and ( 4) million used for repayment of borrowings. The actual closing of the SafeNet acquisition occurred in early January 2015, and consequently, Gemalto s cash and cash equivalents as at December 31, 2014 were 1,057 million. With current and non-current borrowings, excluding bank overdrafts, at 564 million, the net cash position at year end was 493 million. At the year end 2014, the net book value of plant, property and equipment assets was 280 million, compared to 237 million at the end of Total assets grew to 3,782 million as at December 31, 2014, compared to 2,919 million as at December 31, 2013, due to the increase of current assets, balanced between trade receivables and cash in relation to the Company s increased business activities and provisions for the acquisition of SafeNet. Shareholders equity increased by +11%, or million, to 2,396 million as at December 31, 2014, compared to 2,153 million as at December 31, The increase was mainly the result of the positive net profit generation, partly offset by the dividend distribution. Following the issuance of the aforementioned bond and the partial drawdown of existing credit lines to fund the planned acquisition of SafeNet, current and non-current borrowings increased to 566 million compared to 7 million in Total liabilities grew to 1,386 million as at December 31, 2014 compared to 766 million as at December 31, 2013 due mainly to the increase in borrowings. Outlook For 2015, Gemalto anticipates a steady expansion in annual profit from operations towards its upgraded 2017 objective of over 660 million. How we create value Financial review Sustainability Risk management Governance Financial statements Gemalto Annual Report